Concentrated marijuana fastest growing sector in Colorado retail pot industry
August 11, 2014
The fastest growing business in the retail marijuana industry hinges on a hair.
Tiny, delicate, crystal-coated strands called trichomes abound on high-quality marijuana flowers and trimmings.
"The trichome is the structure of the marijuana where the oil is held — all the THC and other cannabinoids," said Brett Mouser, co-founder and owner of Mahatma Extreme Concentrates in Denver. "We're stripping off the frosty and sugary trichomes. There is nothing else from the plant that goes into it. We strip the medicine, if you will, from the material. And the yield always depends on trichome content."
Those little hairs helped Mouser re-launch his professional career. Six years ago the ship he was riding started to sink. The housing bubble, blown up by subprime mortgages, popped. Mouser found himself right in the middle.
“A couple bad mistakes and it can be the end of your business. Marijuana is no different.”
"I had worked in the mortgage business for 10 years," he said. "Then 2007 and 2008 came through, and I didn't position myself well with the company. I was one of those young brokers who was spending healthy but not putting money back into the business like I should. Then hard times came. Margins dried up, and refinancing started to go away. Then the banks tightened up their policies and weren't lending as much. I found myself in a bad position. I had too much overhead. I had to downsize and lay people off. It came to the point it wasn't a viable industry anymore, and I had to reposition myself."
He gave up the mortgage business and floated around for a year. Then a high pulled him back to earth.
"I had grown (marijuana) for personal use back in the mid-'90s," Mouser said. "I had some friends who knew I could grow, and they wanted to jump into the 2009 green rush that was going on. At first I just helped design a grow room at a buddy's house. Then I started looking into it a little more."
Sometimes it seems things happen for a reason. Shortly after the mortgage crisis, a change in medical marijuana law made growing much more profitable. A Denver attorney named Warren Edson had just helped change the so-called "Caregiver Law." From 2000 (the year when medical marijuana became legal) to 2009, the state said a medical grower could grow only enough plants to care for up to five patients. The new ruling suddenly allowed a grower to be a caregiver for an unlimited number of patients.
"With the unlimited caregiver law I was able to organize more than 200 patients," Mouser said. "I was able to grow thousands of plants, way more than I needed. Everybody was doing it. It blew the top off of it. Everyone ran wild, and upwards of 1,500 dispensaries opened up. Then the state got involved. I don't think you'll ever see that explosion again. It was timing. Nobody really expected it."
That window allowed Mouser to secure a foothold in the marijuana industry.
"In 2010 I got together with my partner and we opened here," Mouser said. "It was like chocolate and peanut butter."
Now he's the owner and chief operations officer for one of the most successful and award-winning concentrate manufacturers in Denver.
"We all started out using open blasting," Mouser said. "Safety was a big issue. There were several cases in the news of hash oil explosions and houses blowing up. If you're collecting butane in a liquid form, and it's evaporating off, it's very dangerous and flammable."
When making concentrates, n-butane is used to purge everything from the marijuana except the cannabinoids. Because production can be very dangerous, more than a year ago Mahatma switched to a 100 percent closed-loop system, which prevents gases from escaping.
The state of Colorado mandated that by July 1, 2014, all concentrate manufacturers using hydrocarbon solvents with a Marijuana Infused Products Manufacturing License (MIPs) must be on a closed-loop system.
"(N-butane) is pulled through the material from one container and ends up in a second container," Mouser said. "Then we extract that liquid back into the first container and can use it again. It's a constant recycling system every time you run it. No evaporation or harmful vapors that can ignite are released."
What's left of the marijuana material is a tray of copper- to amber-colored goo. It's smeared into the shape of a pizza pie and baked in a vacuum-sealed oven for at least 24 hours. A potent marijuana concentrate coined "shatter" emerges. It has up to 80 or 90 percent THC. Compare that with the 15 to 25 percent you find in the best flowers.
It's one of the most popular and best-selling items. And it sells for up to $40 or $50 per gram at local shops, compared with $15 to $25 per gram for flowers.
It requires expensive equipment operated in a secure laboratory. Because of the costs and difficulty in creating the high quality hash, which is light years ahead of its bubble hash predecessors, virtually all the professional kitchens are located in the Denver area.
"A good majority of our business is contracting with growers to turn their trim into concentrate," Mouser said. "We work with High Country Healing, in Silverthorne, and Breckenridge Cannabis Club."
The Mahatma lab is beyond secure. Thick walls and a series of locked doors, all under the surveillance of about 90 security cameras, protect the facility. Some of these measures, such as the cameras, are required by the state. It's part of its program to prevent diversion, which is legally grown marijuana entering the black market.
From seed to shatter
Local recreational pot shops have trouble keeping shatter stocked on their glass shelves. Concentrates constitute as much as 30 to 50 percent of all sales at most shops. The concentrate craze has made it difficult for many manufacturers to keep up with demand.
"We were ready to go retail on day one, Jan. 1," Mouser said. "But we didn't see a jump from the retail until June and July. Now we're dealing with bigger players. We still work with mom-and-pop shops who want to run 2 pounds of trim. But what I'm noticing is bigger conglomerations of dispensaries that own five to 10 shops, are giving us bigger quantities to run for them as they keep expanding their grows for recreation. Now it's coming so hard we've had to double our shifts to a 24-hour operation to handle the value."
It can be a struggle to find enough trim to keep up with orders. That's prompted Mahatma to produce its own source material.
"To be able to control your own source material is key to business," Mouser said. "MIPs that don't have their own grows are starting to come online with grows. They are understanding that everybody is looking for trim, and if you don't have your own grow you are at the whims of the market. You have to hope some is available and the price is right."
Mahatma currently processes a total of 50 to 55 pounds of source material daily. That translates to about 5 pounds of concentrate per day. Controlling its own grow has helped the company expand.
"We kind of stumbled into it very early on," Mouser said. "Early on we almost went bankrupt. So we decided not to be dependent on anyone else and to grow our own.
"We produce about 35 pounds per month now from our own grow. That goes straight to our Mahatma platinum-label product. It's a 'nug run product' — concentrate made from flower instead of from trim."
Concentrates produced from flowers tend to have a higher yield than those made from trim. Worst-case scenario with trim is 10 percent yield. Worst case with bud is 15 percent.
"We like to have control over the trim," Mouser said. "There are so many variables that go into it. If you get trim from weed that hasn't been flushed properly or they let it go too long it can affect the color and the smell. Any additives or heat stress can also affect it. This way we have control. We're pretty fanatical about flushing and leaching all the nutrients out of the plant and the soil. If not it ends up in the product as a variable. When you don't flush out nutrients, the burn, the eye appeal, it's just not there.
"We have black, gold and platinum labels depending on quality put into it. Even (for) someone growing the best flowers, it won't always equal the best concentrate. We have to be very particular about what we put our name on in order to protect the brand."
From garage to lab
When Amendment 64 was passed, extraction companies weren't sure how the law would apply to them. For instance, Washington state chose to disallow concentrate sales from recreational shops.
But over the past two years, Colorado's Marijuana Enforcement Division has worked with industry experts to craft laws regulating the production of concentrates using hydrocarbons. And some of those rules are still being ironed out.
"It was only in last eight or nine months we knew what was going to happen in concentrates," Mouser said. "We had to wait for MED to come out with the rules that said how we were doing it was OK. For dispensaries and grows it was all laid out. The extraction part wasn't defined. It was a gray area. For a long time we were in the shadows of not knowing. Then once they came out and gave us direction, it gave us a different feeling.
"This year I've been pinching myself. You can't step into marijuana like we did. I stepped in with $40,000 cash and my partner had the licenses. This is legitimate. I can go out and feel good about what I do. I'm a licensed hash maker."
That initial investment and partnership has turned into a multi-million dollar operation. And there's no telling where the future of the industry is headed.
"Going from garage to laboratory is what we did," Mouser said. "The methods are now laboratory grade. Now we're in the lab, and we need to look at what really is the next level of concentrates.
"We are at the point where we need to hire someone with a chemistry degree to take us from where we are now to the future. Using different pressures and temperatures on the extraction machine can give your shatter different profiles. It's something we need to get our heads wrapped around. We need to take the science part and move us toward the next advancements in the industry."
And when the vertical integration law goes away Oct. 1, it will allow a whole new cast of characters to get involved in the business. It could create the next industry bubble. Right now, recreational shops must produce the bulk of their own flowers, but that goes away as the vertical integration rule expires.
"They are bringing back the independent grower," Mouser said. "People are going to build massive warehouses. Everyone keeps jumping in and this bubble grows bigger and bigger. If something were to happen and interstate transport become allowed, Colorado can become a massive grow hub with all this massive grow and inventory to ship to other states so they don't have to deal with it."
This could affect values.
"There are so many grows in Denver now," Mouser added. "Will there be a boom and bust? There is a boom and bust to everything. I feel a lot better in this business than the mortgage industry, though. The bust here might be if values drop. A pound currently goes for $1,800, which is pretty low. But it might drop to $1,000 a pound in 12 months. You have to know how to operate a business on low margins. There'll be a big attrition rate for people who can't make it through that curve.
"The amount of money it takes and having to learn by trial and error. A couple bad mistakes and it can be the end of your business. Marijuana is no different."
While it's unknown just how far the industry can go, the biggest boom in the recreational pot experiment so far still hinges on a hair.
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